We often see insiders buying up shares in companies that perform well over the long term. The flip side of that is that there are more than a few examples of insiders dumping stock prior to a period of weak performance. So we'll take a look at whether insiders have been buying or selling shares in Hon Corporation Limited (HKG:8259).
What Is Insider Selling?
It's quite normal to see company insiders, such as board members, trading in company stock, from time to time. However, such insiders must disclose their trading activities, and not trade on inside information.
We would never suggest that investors should base their decisions solely on what the directors of a company have been doing. But it is perfectly logical to keep tabs on what insiders are doing. For example, a Harvard University study found that 'insider purchases earn abnormal returns of more than 6% per year.
The Last 12 Months Of Insider Transactions At Hon
In fact, the recent purchase by Keng Weng Lee was the biggest purchase of Hon shares made by an insider individual in the last twelve months, according to our records. That means that an insider was happy to buy shares at around the current price of HK$0.12. That means they have been optimistic about the company in the past, though they may have changed their mind. If someone buys shares at well below current prices, it's a good sign on balance, but keep in mind they may no longer see value. The good news for Hon share holders is that an insider was buying at near the current price. The only individual insider to buy over the last year was Keng Weng Lee.
The chart below shows insider transactions (by individuals) over the last year. By clicking on the graph below, you can see the precise details of each insider transaction!
Hon is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Does Hon Boast High Insider Ownership?
Another way to test the alignment between the leaders of a company and other shareholders is to look at how many shares they own. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. Hon insiders own about HK$12m worth of shares. That equates to 20% of the company. This level of insider ownership is good but just short of being particularly stand-out. It certainly does suggest a reasonable degree of alignment.
So What Do The Hon Insider Transactions Indicate?
The recent insider purchase is heartening. And an analysis of the transactions over the last year also gives us confidence. But we don't feel the same about the fact the company is making losses. Insiders likely see value in Hon shares, given these transactions (along with notable insider ownership of the company). I like to dive deeper into how a company has performed in the past. You can find historic revenue and earnings in this detailed graph.
Of course Hon may not be the best stock to buy. So you may wish to see this free collection of high quality companies.
For the purposes of this article, insiders are those individuals who report their transactions to the relevant regulatory body. We currently account for open market transactions and private dispositions, but not derivative transactions.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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